What Do PPD’s Newly Added Risk Factors Tell Investors?

PPD (PPD) is a contract medical research company based in North Carolina. In April, it agreed to be acquired by Thermo Fisher Scientific (TMO) in a transaction expected to close by the end of 2021. Let’s take a look at PPD’s latest financial performance and risk factors.

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PPD’s Q2 Financial Results

The company reported its second-quarter financial results on July 28. Revenue increased 55.8% year-over-year to $1.6 billion, driven by a 59.5% year-over-year increase in clinical development services revenue. Adjusted EPS came to $0.39, rising from $0.25 in the same quarter last year.

PPD CEO David Simmons commented, “I’m delighted to report that our strong momentum across the business continued in the second quarter…With our differentiated capabilities, deep customer relationships and culture of quality and innovation, we remain well positioned for ongoing success as we look forward to the anticipated merger with Thermo Fisher Scientific.”

PPD closed Q2 with $949 million in cash and $4.3 billion in gross debt, resulting in net debt of $3.3 billion. The company revealed it has $598.4 million under its revolving credit facility. Including cash, PPD finished Q2 with total liquidity of more than $1.5 billion. (See PPD stock charts on TipRanks).

PPD’s Risk Factors

According to the new Tipranks Risk Factors tool, PPD has a total of 48 risk factors. The primary risk category is Finance and Corporate, accounting for 44% of the total risk factors. Legal and Regulatory and Macro and Political are the other key risks at 13% each.

Since June 2021, PPD has adjusted its risk profile to add four new risk factors. Three of the newly added risks fall under Finance and Corporate and one under Legal and Regulatory. All of the newly added risks pertain to the pending merger with Thermo Fisher.

PPD agreed to be bought by Thermo Fisher for $47.50 per share. It will involve Thermo Fisher paying a cash purchase price of $17.4 billion and assuming about $3.5 billion of PPD’s net debt.

Under the Financial and Corporate risk category, PPD cautions that there is no guarantee the merger will be completed. It says that failure to complete the deal could negatively impact its business and stock price. The company also says that the agreement with Thermo Fisher restricts its ability to seek alternative merger proposals that may offer a higher value.

The newly added Legal and Regulatory risk warns that litigation challenging the Thermo Fisher merger agreement may delay the closing of the deal, or even block it completely. PPD further says that having to defend the merger may be expensive by consuming resources and diverting management’s attention. That would in turn adversely impact its business.

PPD’s Finance and Corporate risk factor is above the sector average at 44% versus 41%. PPD shares have gained about 35% since the beginning of 2021.